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K KARTHIK RAJA
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Dividend analysis of TCS,I think you will like it as well. Before we look into the list of stocks, that let’s dig deeper into dividends.
There are less takers of top dividend paying stocks in India. Do you know why? Because people like “capital appreciation” more. Why? Because its yield is generally higher.
But does that make “dividend” less worthy? Not at all. What comes as a package with capital appreciation is “uncertainty”. Predicting capital appreciation is harder. But dividend income is more rational and predictable.
Dividend’s yield may be low, but still it can be preferred. How? Some find it hard to believe that, there are investors who invest in stocks just for dividends. Why they can’t believe?
Stocks Analysis Worksheet - Plus - Basket
Because of the magnitude of difference, in numbers. What are the numbers?
Capital Appreciation: Stock’s yield can be like 12% p.a.
Dividend income: Stocks yield can be like 2-3% p.a.
If it is so, why there are people who anyways love dividend income?
This is what we will discuss in this article.
“Dividends” may not be as flashy as “capital appreciation”, but it still has its own place.
In this article I will explain what makes dividend so special, irrespective of its limitations.
Top Dividend Paying Stocks in India -1
#1. Dividend focused investing is also necessary…
Yield of dividend income can be low.
But investors who invest in them does it with a different objective.
Yes, people who buy dividend paying stocks are different. Why?
The reason is simple:
Dividend income is more predictable. Capital appreciation is less certain.
Champion investors like Warren Buffett love dividend paying stocks, why?
High growth rate is a priority for majority. But expert investors prefer to have a balanced portfolio.
Portfolio focusing only on capital appreciation may pose too high risk.
Inclusion of dividend paying stocks has a balancing effect on ones investment portfolio.
#2. Dividends are best form of passive income…
Expert investors love passive income. Dividend is one of the best form of passive income.
How to generate dividend income? By buying dividend paying stocks at right price.
What makes dividends, the best passive income? Number one reason is, they originate from equity.
What makes equity-factor so special here? Equity yield can improve with time.
A stock which is yielding 0.5% at the time of purchase, can yield much higher with passage of time.
Let me give you two examples:
Suppose a person bought shares of TCS in year Mar’09. Details are as below:
Share Price (2009): Rs.132/share.
No of shares bought: 10 nos.
Cost paid to buy TCS: Rs.1,320.
Dividend paid in 2009: Rs.14/share.
Total dividend income in 2009: Rs.140.
Dividend yield in 2009: 10.6%.
Suppose this person held on to his shares till year 2018.
What will be his dividend yield as on Mar’18?
[Note: Bonus shares 1:1 was also issued to all shareholders between Mar’09 & Mar’18]
Cost paid to buy TCS: Rs.1,320.
No. of shares held in 2018: 20 nos (1:1 bonus share)
Dividend paid in 2018: Rs.50/share.
Total dividend income in 2018: Rs.1,000
Dividend yield in 2018: 75.7%.
Dividend Yield in 2009: 10.6%
Dividend Yield in 2018: 75.7%
If the example of TCS is looking to good to believe, let’s take a more submissive example.
Suppose a person bought 10 nos shares of Hindustan Unilever Ltd (HUL) in 2009.
Share Price (2009): Rs.239/share.
No of shares bought: 10 nos.
Cost paid to buy HUL: Rs.2,390.
Dividend paid in 2009: Rs.7.5/share.
Total dividend income in 2009: Rs.75.
Dividend yield in 2009: 3.15%.
Suppose this person held on to HUL shares till year 2018. What will be his dividend yield as on Mar’18?
[Note: No bonus shares were issued to shareholders between Mar’09 & Mar’18]
Cost paid to buy HUL: Rs.2,390.
No. of shares held in 2018: 10 nos.
Dividend paid in 2018: Rs.20/share.
Total dividend income in 2018: Rs.200
Dividend yield in 2018: 8.36%.
Dividend Yield in 2009: 3.15%
Dividend Yield in 2018: 8.36%
What does the above 2 examples of TCS and HUL suggest?
Just by holding on to “good stocks” for long term (10 years), their dividend yield itself will become high enough to beat the returns of any debt instrument.
Is it that easy? Buy dividend paying stocks, hold for long term, and that’s it?
Yes it is this easy. The only control point is, one must buy only “good stocks“.
#3. All dividend paying stocks are not good
Not all stocks that pays dividends are good.
If the criteria is assured income, all consistent dividend paying stocks must be a good buy, right?
Dividend focused investors like to have one more check.
Consistent dividend payout by companies are great, but it must also show growth.
Dividend, which grows year after year makes it even more likeable.
This is what makes companies like TCS and HUL a good dividend paying stock.
Over a period of last 10 years, dividend trend of TCS and HUL shows a definitive growth trajectory.
Top Dividend Paying Stocks in India -2
Do all companies pay growing-dividends to its shareholders?
No. This is why identification of “good dividend paying companies” is not easy.
The investors must take the time out and look into the financial reports of companies.
#4. Why dividends are more predictable than capital appreciation?
To understand this, we shall first understand what are dividends.
Dividends are nothing but a part of companies net profit.
A company which makes more profits, will pay higher dividends.
Dividend payment is a process by which companies share its net profit, with its shareholders.
When companies increase their dividend payouts, it is actually giving a hint that its profits are improving.
Hence, growing dividend payout, year after year, is an indication of a fundamentally strong company.
So what can we conclude here?
Good dividend paying stocks must have the following 3 attributes:
Consistent dividend payout.
High dividend yield.
Growth in “dividend per share” with time.
Not all companies can dare to pay dividends
Dividend paying companies are more confident about its future cash flows.
Hence they dare to distribute large amount of PAT as dividends.
#5. Dividend vs debt focused investing
Good dividend stocks offer 2 clear benefits to its investors.
– First, they generate short term income.
This income is both consistent and also grows.
– Secondly, they also provide capital appreciation when held for long term.
Which other investments can generate short term income?
Debt linked, risk free options are available.
These investment options can give a yield of 7.5% per annum.
Whereas stocks can give only 3-4% in the beginning years.
Why to invest in stocks?
Initial yield of debt linked plans can be better than dividend yield of stocks.
But there are some disadvantages of debt plans compared to dividend paying stocks:
Income from debt linked plans are 100% taxable.
Yield of debt linked plans cannot improve with time.
Dividend received from stock holdings in India is almost tax free.
Why I say almost?
Because, if dividend income exceeds Rs.10,00,000/year, only then it is taxable.
Example: If you earned a dividend income of say Rs.10,50,000.
You will be taxed only on Rs.50,000 @ flat 10%. Tax is levied only on excess amount over and above Rs.10 lakhs.
So in this case, the tax liability due to dividend will be 10% of 50,000 = Rs.5,000 only.
Another benefit of dividend paying stocks is its “potential growth”.
This we have already seen above in examples of TCS and HUL.
#6. Price of Dividend Paying Stocks are Stable
Price of dividend paying stocks are very stable.
Historically, price of dividend paying stocks waver less than other stocks.
They have lower beta.
We may not feel this benefit when market is fair. But when stock market crashes, dividend stocks stands tall.
When everywhere there is a panicky, dividend stocks provides stability.
People continue to hold on to dividend stocks even during market crash.
The reason is simple, they continue to earn dividend even during market crash. Why?
Moreover, dividend stocks are those stocks, which recovers faster after crash.
So, instead of selling, people buy dividend stocks during market crash.
This gives dividend paying stocks its price stability.
#7. How investors can plan and earn higher dividend?
It is possible to plan purchases of good dividend paying stocks. How to plan?
Keeping a record of past dividend payouts by companies helps in planning. How?
Investors can tract the dividend payout of their favourite stocks.
Which record shall be maintained?
Net Profit (PAT).
Dividend paid (D).
Dividend Payout % (D / PAT)
Dividend payout suggests, what portion of PAT was paid out as dividend to the shareholders.
Record keeping of “dividend payout %” will give a good insight. How?
Lets bring the examples of TCS and HUL again:
Top Dividend Paying Stocks in India -3
The above chart is showing a trend of dividend payout ratio for TCS and HUL.
What is the trend?
HUL: If HUL will follow this trend, most likely it will give 80% of its PAT as dividend to its shareholders in the next few years.
So if we can extrapolate PAT of HUL for next 3-5 years, we will approximately know what can be a potential “dividend income” out of HUL.
Similarly, let’s analyse the trend of TCS.
TCS: If TCS will follow this trend, most likely it will give 35% of its PAT as dividend to its shareholders in the next few years.
Though it will be only a guess work, but generally stable-companies try to mimic their past behaviours in normal times.
A company which has a habit of paying 30% of their net profit in dividends, will continue to do the same in times to come.
So this is first part of the planning process.
Keep a note of how much percentage of net profits companies pay in form of dividends.
The second part of planning is to keep a track of market price of its stock.
Suppose at a market price of Rs.100, a stock is yielding dividend of 2%. If the price falls to Rs.80, the same stock will show dividend yield of 2.5%.
When price of stocks fall, its dividend yield becomes more attractive.
During stock market crash, price of stocks fall by huge margins.
During this time, investors can plan to accumulate good dividend paying stocks.
#8. Consistent dividend payment is a great value indicator. How?
Experts considers high dividend yield as a strong value indicator.
If a quality stock is yielding high dividend, it is considered as undervalued.
We know that, Improving sales and profit figures are one of the strongest fundamental indicators of quality stocks.
High profitability and low debt dependency is just like an icing on cake.
How much dividend a company pays to its shareholders gives a great hint about how the company is managing its sales, profits, and debt.
Companies which shares its profits consistently (dividends) are confident companies. This confidence comes with predictability of future earnings.
A good company, will never compromise its short term liquidity to please shareholders.
Maintaining liquidity to pay its current liabilities is a top priority for any company.
So if a company is paying dividends it means that liquidity is in full control.
A company which is paying regular dividends must have sufficient liquidity to take care of its current liability.
#9. Different ways to earn dividends in India…
In India there are only few avenues to earn dividends.
One of the well-known way is to buy dividend paying stocks.
Another way is to buy dividend paying mutual funds.
In Europe and America dividend paying exchange traded funds (ETF’s) are also available.
At the moment India do not have such ETF’s.
People can buy stocks using online trading account.
These days mutual funds can also be purchased using online trading platforms.
If one does not have it, then the easiest option is to call your bank.
They will send investment agents who can arrange to buy dividend focused mutual funds for you.
#10. Limitations of dividend…
If dividend paying stock are so good, why everyone do not only buy them?
Enough of only good things about dividend paying stocks. Here are some limitations of dividend focused investing.
I feel, being aware of these limitations will further enhance the benefits of dividend focused investing for the investors…
#10.1. High Dividend Yield is not enough…
Some might think that high dividend yielding stocks are good.
But “yield” is not a sufficient indicator to identify good dividend paying stocks.
Stocks paying high dividend one year, and nothing the following year, is also not good.
Consistent dividend payment is what is more interesting.
It may happen that a stock is yielding 8% dividend. But the following year the yield falls to as low as 0.5%.
This is what happens for majority companies.
For majority stocks dividend yield is not more than 0.5-1%.
Investors target should be to buy stocks which pays consistent dividends. How to do it?
Buy stocks of good companies…like TCS and HUL…the list is provided below
#10.2. Beware of Fluctuating dividends and weak fundamentals
Fluctuating dividend and weak fundamentals are the main hurdles of dividend focused investing.
Couple of years back Strides Arcolab was yielding dividend close to 33% per annum.
In Mar’14 it paid: Rs.505/share as dividend.
In Mar’15 it paid: Rs.108/share as dividend.
But after that, it dividend payment dipped to bare minimum:
In Mar’15 it paid: Rs.4.0/share.
In Mar’16 it paid: Rs.4.5/share.
In Mar’17 it paid: Rs.2.0/share.
In Mar’18 it paid: Rs.2.0/share.
Strides Arcolab is not a bad company. But post Mar’15, its profits has gone down.
People who bought this stock then, for dividend yield, must be feeling disappointed today.
Hence, it is important to look at dividend yield, but in conjunction with other fundamentals like sales, profit, EPS, dividend payout %, etc.
Extremely high dividend yields are often not sustainable.
Suggestion – Try to reinvest Dividends
Reinvesting earned dividends will further increase the yield.
People must invest systematically to accumulate dividend stocks.
Then the earned dividends from such stocks must be reinvested.
It is important to reinvest the dividends that flows-in.
Use the dividend income to buy more “dividend paying stocks”.
This cycle continues.
“More stocks means more dividends. More dividends means, more stocks purchase”.
It becomes a a great wealth generating cycle.
It is said that Warren Buffett earns billion dollars alone in dividends.
Set a personal target for yourselves. In next five years, let your dividend income reach Rs 5,000/month mark.
Lets start accumulating high quality, dividend paying Indian stocks.
List of Highest Dividend Paying Stocks in India 2019
(Updated for February’2019)
SL Company Current Market Price (Rs.) Dividend Paid in Lump sum 5Y Avg (Rs.Cr.) Dividend Payout (%) Dividend Yield (Last 5Y Avg.) % Dividend Yield (Latest) %
1 Coal India Limited (CIL) 224 14,259 153.43% 10.13% 7.37%
2 Tata Consultancy Services (TCS) 2,026 9,636 38.18% 2.43% 2.39%
3 ONGC 142 7,691 38.56% 5.38% 4.26%
4 Hindustan Zinc 255 6,389 68.87% 5.93% 3.14%
5 ITC Ltd. 283 5,846 52.09% 2.20% 1.67%
6 Infosys 751 5,380 33.30% 5.01% 3.43%
7 IOCL 138 5,321 24.93% 8.65% 7.25%
8 HUL 1,822 3,376 64.46% 0.86% 0.99%
9 NTPC Ltd. 140 3,440 33.26% 2.98% 3.50%
10 NMDC 96 3,042 117.49% 8.17% 4.32%
11 SBI 296 1,803 -27.54% 0.69% 0.00%
12 Reliance Industries Ltd. (RIL) 1,246 2,417 7.19% 0.52% 0.41%
13 ICICI Bank 361 1,984 29.27% 0.73% 0.00%
14 Vedanta 166 3,893 53.65% 6.65% 12.76%
15 HCL Tech 1,032 2,309 31.36% 1.68% 1.18%
16 HDFC 1,964 2,138 17.57% 0.68% 0.90%
17 Wipro 367 1,937 25.08% 2.09% 0.27%
18 Bharti Infratel 292 1,532 63.47% 2.80% 1.37%
19 HDFC Bank 2,107 1,210 6.92% 0.22% 0.00%
20 Oil India 171 1,400 52.47% 12.21% 13.19%
21 Hero Motocorp 2,775 1,474 39.87% 2.66% 3.06%
22 Power Fin. 102 1,521 25.97% 8.78% 7.65%
23 BPCL 339 2,784 35.15% 7.33% 4.33%
24 Bajaj Auto 2,587 1,505 36.99% 2.01% 2.13%
25 NHPC 25 1,287 46.64% 4.81% 4.82%
26 REC 123 1,410 30.34% 8.84% 8.17%
27 HPCL 232 1,664 26.18% 10.69% 6.57%
28 L&T 1,320 906 16.82% 0.74% 0.00%
29 GAIL 331 1,197 25.93% 2.31% 2.35%
30 Indiabulls Hsg 678 1,309 36.70% 4.86% 6.03%
31 Power Grid 189 1,082 13.13% 1.09% 1.30%
32 Axis Bank 710 1,164 422.33% 0.64% 0.77%
33 Tata Steel 474 844 20.25% 1.98% 2.17%
34 ICICI Pru 285 866 53.49% 2.29% 2.42%
35 M&M 689 961 22.06% 1.76% 1.08%
36 Tech Mahindra 740 935 23.38% 1.70% 1.43%
37 Interglobe Avia 1,174 844 37.65% 809.98% 2.72%
38 Maruti Suzuki 6,945 1,039 13.46% 0.50% 1.08%
39 NLC India 64 642 34.74% 6.30% 6.61%
40 Asian Paints 1,449 713 37.61% 0.51% 0.71%
41 Bank of Baroda 111 397 -16.32% 1.35% 0.00%
42 SJVN 25 641 52.35% 6.28% 8.00%
43 Nestle 11,488 596 48.63% 0.54% 0.75%
44 Siemens 1,028 445 49.80% 1.22% 0.68%
45 Dabur 447 385 35.92% 0.49% 0.61%
46 Sun Pharma 420 462 -93.48% 0.49% 0.79%
47 UltraTech Cement 3,475 265 11.85% 0.28% 0.29%
48 JSW Steel 272 349 7.55% 2.05% 1.00%
49 Godrej Consumer 699 274 27.42% 0.89% 1.29%
50 HDFC Life 374 182 16.45% 0.24% 0.36%
51 Titan Co. 992 163 14.05% 0.19% 0.26%
52 Britannia 3,222 216 22.78% 0.56% 0.68%
53 Eicher Motors 19,673 191 11.17% 0.36% 0.51%
54 Bosch 19,040 295 21.55% 0.50% 0.47%
55 Motherson Sumi 141 300 34.16% 1.70% 1.42%
56 Hindalco 210 233 16.24% 0.52% 0.62%
57 Cipla 519 165 11.22% 0.40% 0.39%
58 Pidilite 1,122 192 20.11% 0.33% 0.43%
59 Aurobindo Pharma 788 137 7.58% 0.39% 0.48%
60 Zee Ent 361 216 11.30% 0.62% 0.69%